Cross-Strait interdependence: Who needs whom?

Written by Michael Reilly.

Alastair Campbell famously once said that Tony Blair’s government didn’t “do God”. In similar vein, Chinese foreign policy makers don’t “do subtlety”. I remember being physically threatened by a senior Chinese diplomat at an international conference; although I think he was half-joking. So in the aftermath of Taiwan’s Autumn 2014 local elections and with more than half an eye on next year’s Presidential elections, the Chinese policy-making juggernaut is already gearing up to take action should the result not be to its liking. For example, one ASEAN ambassador in Beijing saw the presence of senior representatives from all of Taiwan’s diplomatic allies in Latin America and the Caribbean at last month’s China-CELAC summit in Beijing as a none too subtle signal to Taipei that should 2016’s election see a DPP win, the current truce between the two sides over third-country diplomatic recognition would be over.

Implicit in driving such behaviour is an assumption that Taiwan needs good relations with China far more than the other way round. This was also a key assumption of Ma Ying-jeou’s 2008 election campaign, and formalised in the succession of bilateral agreements signed since. But is this really so? Diplomatic recognition of Taiwan has been haemorrhaging steadily ever since China joined the UN in the 1970s, yet economically, politically and socially Taiwan has gone from strength to strength. Last year’s ‘Sunflower Movement’ protests and the Autumn elections were also clear demonstrations that ordinary Taiwanese have seen little or no benefit from Ma’s rapprochement strategy.

What, however, of the mainland position? A common assumption current in China is that Taiwan is growing ever more dependent economically and that this makes unification only ‘a matter of time.’ At first glance the statistics support this, with China now taking over 25% of Taiwan’s exports and a further 13% going to Hong Kong, much of this also destined for China. Scratch the surface, however and a different picture starts to emerge. By classification, 37% of Taiwanese exports are ‘electronic equipment,’ which is also Taiwan’s main export to China. Not coincidentally, China’s largest export is also electronic equipment, accounting for 25% of exports. And at least 7 of the top 10 electronic equipment exporters happen to be Taiwanese companies. The reason is simple: China is the final assembly point in the global supply chain that is the modern IT industry. Any drop in Taiwanese exports to China would soon be reflected in China’s own exports. Collectively Taiwanese companies employ more than 70 million Chinese – almost as many as there are Party members – making them by far the biggest private sector employers in the country. These numbers are significant, particularly given Beijing’s acute sensitivity to unemployment figures.

It makes sense, for public consumption, to claim that Taiwanese investors in China are motivated by patriotic reasons, but anecdotal evidence suggests that many more of them have been motivated by purely pragmatic business reasons. A common language, low wages and easy access to factories in the Yangtze and Pearl River Deltas were driving factors in the early waves of Taiwanese investment on the mainland. But as wage and other costs in the coastal areas continue to rise and central government policy encourages new investment in western China, patriotic duty alone is unlikely to persuade investors to set up in Chongqing. Other incentives will be needed if they are not to relocate to Vietnam or Indonesia instead. In these circumstances, a threatening stance towards Taipei could quickly prove counter-productive.

This is not to say that the next government in Taipei need not be sensitive to business concerns. A priority for whoever the winner is, will be to agree an economic strategy acceptable to both the ‘squeezed middle’ and its footloose global businesses. But it would be a mistake for China to see the cross-Strait relationship as one of dependency. The uncomfortable reality that Beijing must face is that in some aspects what is good for Taiwan is also good for China.

Michael Reilly is a non-resident Senior Fellow at the CPI, a former Director of the British Trade and Cultural office in Taipei and until recently the chief representative in China of a major international aerospace company. Image Credit: CC by Geir Halvorsen/Flickr